Personal Care Companies Shed Weight In 2014
2014 was a year of shedding non-core divisions in the personal care industry. Three of the four major global personal care companies sold or spun off at least one brand or division during the year, with more sell-offs likely in the future. These companies seem to have rediscovered the benefits of having slimmer operations focused on their core strengths. In this article, we will summarize the recent divestments by the trio of world leaders in personal care products, namely, Procter & Gamble (NYSE: PG), Unilever (NYSE: UL) and Kimberly-Clark (NYSE: KMB).
Procter & Gamble: 100 Brands Too Many
In August 2014, P&G announced its plan to trim its burgeoning brands portfolio by shedding as many as 100 brands (Read: Brand Divestitures Should Unlock Greater Value). This portfolio consolidation is expected to boost the company’s bottom line by saving on marketing and non-manufacturing related overhead. The company’s overall revenue growth potential will also receive a boost by divestment of brands that have not been able to achieve traction. Post-divestment, P&G will be left with only 70-80 high value brands, of which 23 currently have sales of over $1 billion each.
The company kicked off this plan in November by announcing the sale of its batteries business, Duracell, to Berkshire Hathaway in a deal amounting to $4.7 billion. Even though the sale meant letting go of Duracell’s nearly 25% market share in the global batteries market, it could bode well for P&G since replaceable batteries are rapidly losing steam in favor of the now-widely used built-in, rechargeable power sources. The company has also announced the sale of its 78.8% stake in China’s leading alkaline battery maker [1], the Fujian Nanping Nanfu Battery Co for $600 million. This indicates its intention to get out of this non-core business entirely. Batteries, including Duracell, constituted approximately 4% of P&G’s total revenues.
Since the announcement of brand portfolio consolidation in early August, P&G’s shares have jumped by 20% and touched a 52-week high of $92.73 on December 22nd.
Unilever: Cutting Back on Foods Business
Unilever has been slimming down its Foods business since as far back as 2008, selling off a brand or two every year [2] in an effort to retain only the best performing names in its Foods division. This year alone the company has sold off Ragu, Bertolli and Royals pasta sauce brands, as well as the Jack Link’s meat sauce business. The company also has announced the split of its spreads business into a standalone unit.
Unilever’s Foods unit still accounts for over a quarter of its total revenues and generates a healthy 26% EBITDA margin. Furthermore, not all of the divested brands are underperforming – Ragu is one of America’s most popular pasta sauces and has been around since 1937. Thus, it follows that divestment of Unilever’s Foods business is not a matter of performance but preference.
Even as Unilever slowly exits the Foods business, it is attempting to strengthen its position in the global personal care industry. The company’s shifting priority is evident from the fact that revenue share of its Foods unit has fallen from 35% in 2008 to 27% in 2013, while share of its Personal Care unit has grown from 28% to 36% over the same period. The company has stated that cash generation from the Foods business is being used to finance faster expansion in its Personal Care unit [3], with an eye on acquisition of premium personal care brands [4].
Unilever’s shareholders seem to be following its present path with caution, with its shares achieving a negligible 1% growth year to date.
Kimberly-Clark: Healthcare Spin-off
Not to be left behind, Kimberly-Clark completed the spin-off of its healthcare business in November. Its healthcare unit, which formed 8% of the company’s total revenues, has now been hived off into a standalone, publicly traded company named Halyard Health (NYSE: HYH).
This move efficiently rids the company of its worst performing business unit in a tax-free transaction. The healthcare unit’s revenue growth slowed down to 1% and nil in 2012 and 2013, respectively; and with an operating margin of 13% it was the least profitable business of the company. Therefore, this spin-off will not only boost the company’s bottom line, but will also improve its growth rate since it will no longer be dragged down by poor performance of the healthcare division. Perhaps more importantly, this move allows the company to focus exclusively on what it does best – personal care products, consumer tissues and the K-C Professional product line.
Kimberly-Clark’s shares have achieved a moderate growth of 7% since the announcement in November last year.
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- P&G Sells China’s Biggest Battery Maker to CDH for $600 Million, Bloomberg, 5 December 2014 [↩]
- Acquisitions and Disposals, Unilever Investor Relations [↩]
- Unilever Annual Report 2013 [↩]
- Unilever CEO says eyeing higher-priced personal care brands, Reuters, 4 December 2014 [↩]